Question

What will be the impact if reserve bank of india reduces the bank rate by 1?

Answer 1

Heya....

Bank rate is the intrest rate at which RBI gives the loans to commercial banks without any collateral....

If it is reduced by 1 rate then...

Commercial banks will promote to take more loans from Central Bank and it leads in capicity of credit creation by banks and extra loans to people will be possible it increased the money supply in economy and increase in purchasing power of people's...

Answer 2

Market liquidity is a market's ability to facilitate an asset being bought or sold quickly without having to drastically change its price i.e. stable market.

Bank rate is the interest rate at which banks borrows loan from RBI. 

RBI reduces the bank rate when supply of the money is low in the country.

Now banks are getting loans at cheaper rate of interest, so banks will start giving loans at lower interest rates, supply of the money will go up in the country.

Purchasing power of individual will increase, in result demand for the goods will increase, supply will meet the demand.

Reducing Bank rate is one of the Quantitative measure in Monetary policy.

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